Portland, Ore., Working to Free Residents from Poverty's Grip
In 2004, Portland, took a bold step to reduce poverty in its urban neighborhoods. After years of funding community-based organizations to help a lot of people a little bit, the city's Bureau of Housing and Community Development (BHCD) believed it could be more effective by pursuing a focused strategy founded on best practices.
From that belief, Portland launched its Economic Opportunity Initiative in 2004, focusing community development block grant (CDBG) funds on increasing the income of low-income individuals and families. The initiative is a citywide poverty reduction program with a goal of increasing the incomes and assets of low-income residents by a minimum of 25 percent within three years.
Two factors led BHCD to transition from revitalization to income generation as a poverty-reduction strategy-changes in the community and in the city's strategic planning process.
In the late 1990s, Portland experienced a boom. Portland's urban core was revitalized. However, as revitalization and gentrification occurred, low-income people-once concentrated in the inner city-dispersed. Despite the boom, Portland's poverty rate remained constant. Fifty thousand households were living in poverty.
As the Portland landscape changed, BHCD undertook a strategic planning process that included conducting focus groups and meeting with key stakeholders. BHCD responded to the strong messages it received:
- Focus on those most in need: concentrate resources for real impact rather than spreading the money too thinly.
- Move from a geographic to a population focus, and shift the focus from those below 80 percent of the median family income to those at or below 50 percent.
- Concentrate on three initiatives: workforce development for adults; a workforce development program for youth; and microenterprise or entrepreneurship projects that help participants start or expand small businesses.
Other economic development efforts had a trickle-down approach for years (tax incentives, physical revitalization, tax reform, regional assistance to lure companies), and it hadn't worked for low-income residents. BHCD made the decision to change to a bottom-up approach.
BHCD identified best practices from smaller projects throughout the country and implemented them on a citywide scale. Now it invests in a coordinated portfolio of more than 30 projects incorporating these best practices as a foundation:
- Projects serve groups of people united by some common characteristic such as ethnicity, race or entrepreneurial ambition. For example, a project for immigrant Eastern European metal workers builds on their technical experience and trains them to use American equipment.
- Projects provide extensive multifaceted support. Standard components include peer support and help with a range of issues, such as child care, tuition and transportation.
- Real change takes time. The initiative works with participants for three years to find a permanent way out of poverty.
Portland moved swiftly to change the way scarce financial resources were invested in the city's people. By creating a pool of federal, regional and local funds, including matching grants from the United Way, BHCD provides financial resources to organizations trying to expand successful projects that reduce poverty. BHCD used the scale of the initiative to get additional resources and to develop leverage. The results? Year 1: 19 projects with $2.1 million in CDBG and $650,000 in city general funds; Year 2: 30 projects with $2.5 million in CDBG and $650,000 in city general funds; Year 3: 34 projects with $2.3 million in CDBG and $1.26 million in city general funds.
The Economic Opportunity Initiative has developed an array of leveraged resources for participants:
- Pro bono legal aid: Small businesses receive legal services, including help incorporating and reviewing contracts.
- Health care: Formerly homeless participants receive free health care through a partnership with Kaiser Permanente.
- Free market research: Microenterprises can obtain free customized reports.
- Matched savings accounts: Savings toward education, home ownership or a small business investment are matched $3 for every $1 contributed by clients.
- Low-interest business loans: Small-business entrepreneurs are given access to microcredit lenders who can provide low-interest loans.
- Extended Temporary Assistance for Needy Families (TANF) benefits: Oregon has extended TANF benefits for recipients who participate in initiative projects.
- In-depth credit repair: The initiative helps clients repair credit records.
- Clean slate: Participants receive help with cleaning up minor issues with the courts that are barriers to work.
At the end of 2006, there were 1,865 participants in the various projects (389 microenterprises and 1,476 workers on the job or in training). As places become available, new participants are enrolled. By July 2007, the number was expected to exceed 2,000. Seventy-five percent of participants had household incomes at or below 30 percent of the median family income at enrollment. The others were at or below 50 percent.
Return on Investment
The cost per participant ranges anywhere from $1,000 to $10,000 per year. The average cost per participant is $5,500 in Year 1; $1,000 in Year 2; and $1,000 in Year 3.
In comparison, the average annualized income gain of workforce participants at six months after placement is $15,059, far exceeding the cost of the program. In addition, four times the number of workers now have employer-paid health insurance as a result of being placed in jobs.
For existing businesses, revenues have increased an average of 267 percent over two years of participation. Start-up business revenue at two years is 30 percent above the national average of $34,301 for comparable three-year businesses.
As Portland continues to transform the way it does business, there are many cities nationwide that can learn from their experiences.
Bridges is a regular review of regional community and economic development issues. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.
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